If workers and firms know that the Federal Reserve is following an expansionary monetary policy,workers and firms will expect inflation to ________ and will adjust wages so that the real wage ________.

Question

Quizplus · Accepted Answer

When workers and firms expect inflation to increase due to an expansionary monetary policy, they will likely adjust nominal wages upwards to maintain the purchasing power of their wages, meaning the real wage remains unchanged.

If Workers and Firms Know That the Federal Reserve Is